Over the decades, Berkshire Hathaway has built its reputation by acquiring ownership stakes in companies outside of Nebraska.
In his most recent letter to shareholders, Warren Buffett cited performance among the “Big Four” companies, which includes BNSF Railway and Berkshire Hathaway Energy, as key to the conglomerate’s financial success over the past year.
One company, Apple, stood out since Berkshire has only a 5.5% ownership stake in the tech giant yet reaped $5.6 billion in earnings last year.
As Berkshire continues to expand its portfolio with a recent $11.6 billion acquisition of insurer Alleghany Corporation, it still keeps several Omaha-centric companies within its ownership portfolio. Being owned by Berkshire provides what local business executives say is a level of security and stability for their employees.
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Take Oriental Trading Co. as an example. When Berkshire bought Oriental Trading Co. for about $500 million in 2012, Steve Mendlik, the current president and CEO of the online and catalog merchant that sells crafts, party supplies and toys, said the announcement proved emotional.
“Some employees literally cried,” he recalled. “They were so happy to have a permanent home.”
Prior to being acquired by Berkshire, Oriental Trading was struggling financially. Founded by Harry Watanabe in 1932, the retailer remained under the ownership of the Watanabe family before Brentwood Associates of Los Angeles bought the company in 2000.
Throughout those years of pre-Berkshire corporate ownership, the company, according to World-Herald archives, was saddled with debt. In 2006, Carlyle Group of New York City bought a majority stake in the company as Brentwood maintained a minority stake.
The Great Recession caused sales to dip and pushed Oriental Trading into bankruptcy in 2010. With a plan to emerge as a smaller company that would be more profitable, the late CEO Sam Taylor successfully pitched the company and its retail and distribution systems to Buffett prior to Berkshire buying the company.
Now, with Berkshire’s deep pockets, Mendlik said Oriental Trading can be proactive in its business strategy.
“We don’t have to worry about paying down debt,” he said. “We’ve been free to be a lot more strategic in our decision-making.”
In 2014, Oriental Trading bought SmileMakers, a retailer that specializes in children’s toys and novelty items given out at dentists’ and doctors’ offices. At the time, Taylor called the acquisition “a perfect strategic fit.”
Oriental Trading’s acquisition of SmileMakers is just one of the acquisitions the company has been able to make under the Berkshire umbrella.
“We’ve got a pretty good track record of making them work well for us,” Mendlik said.
Nearly 30 years before acquiring Oriental Trading Co., Buffett made arguably his most high-profile local acquisition in Nebraska Furniture Mart. Before Buffett bought a majority interest in the business in a $60 million handshake deal with Rose Blumkin in 1983, Blumkin had built the store up from a small location near her husband’s secondhand clothing store to its present spot occupying a large footprint along 72nd Street a few blocks south of Dodge Street.
Blumkin, commonly known as Mrs. B, proved to be a powerhouse retailer who made a name for herself by her unmatched work ethic and business savvy that she carried with her past the century mark.
“Warren always appreciated Mrs. B’s honesty and integrity,” said Tony Boldt, president and CEO of Nebraska Furniture Mart.
As recounted in longtime World-Herald reporter Steve Jordon’s book, “The Oracle and Omaha: How Warren Buffett and his Hometown Shaped Each Other,” Blumkin, a Russian native, emigrated to the United States at the age of 23 as she followed her husband Isadore. Having previously managed a dry goods store at the age of 16, Blumkin’s business savvy came in handy on the risky journey as she talked her way into the United States despite not having an entry permit.
In 1937, when she was about 43, she borrowed $500 from a relative to start Nebraska Furniture Mart. Initially working out of a small space near Isadore’s secondhand clothing store, it took a while for Blumkin to build up what is now considered to be the largest store of its kind in North America. At one point, Blumkin had to sell all the appliances in her own home in order to pay the company’s bills.
But with her motto of “Sell cheap and tell the truth,” Blumkin was able to negotiate favorable deals with suppliers who wanted to reach the Omaha market. She passed the savings along to customers. Blumkin priced her inventory so low that military members would stock up and then have their furniture shipped to wherever they were stationed as the final costs proved cheaper than furniture at respective local stores.
Even after selling a controlling interest in the Mart to Buffett, Blumkin continued to work at the store for six years until she left in 1989 amid a feud with two of her grandsons, who were the store’s top executives. Even though she was well into her 90s, Blumkin wasn’t done yet.
At age 95, knowing that she had not signed a non-compete clause with Buffett, she opened Mrs. B’s Clearance and Factory Outlet across the street from the Mart. Blumkin continued to work until she was 103. Blumkin died in 1998 at age 104.
Buffett held up Blumkin as a role model for hard work and success.
“Mrs. B worked until she was 103, then died the next year,” Buffett would say. “That’s a lesson to our managers.”
Today, Mrs. B’s is now part of Nebraska Furniture Mart. The store has expanded into flooring, electronics and appliances. Nebraska Furniture Mart also has expanded with retail locations in Des Moines, Iowa; Kansas City, Kansas; the Dallas suburb The Colony and an upcoming store in the Austin, Texas, suburb of Cedar Park.
As Nebraska Furniture Mart celebrates the return of an in-person meeting with a sale for shareholders, it also will hold a picnic Saturday evening.
While acknowledging turnout for the meeting is hard to predict given the pandemic, Boldt said Mart staff is looking forward to seeing people from throughout the world.
“It’s going to be really nice to celebrate in person with people again and be part of the festivities,” Boldt said.
Nebraska Furniture Mart may have been Buffett’s most high-profile acquisition of an Omaha business, but it’s not the first local business he purchased. That honor belongs to National Indemnity Co. Buffett purchased the company for $8.6 million from its founder, Jack Ringwalt, in 1967.
According to Buffett, his purchase of National Indemnity has been the key component into making what Berkshire is today.
“It was National Indemnity that made it all happen at Berkshire Hathaway,” he said in 2015.
Buffett has been able to accumulate the money collected by premiums. That money — which Buffett calls “float” — has allowed Berkshire to build up its war chest and buy stock and other companies.
To this day, Buffett espouses the value of float. In his most recent annual letter to shareholders, Buffett noted that Berkshire’s total float has grown from $19 million to $147 billion.
“So far, this float has cost us less than nothing,” he wrote.
In the insurance world, Buffett’s acquisition of National Indemnity opened the door to investing in reinsurance — assuming risks from other insurers in exchange for fees. In 1992, Buffett bought an 82% stake in Central States Indemnity of Omaha for $82 million.
Staff and executives at Borsheims also are anticipating the return of the influx of customers after the COVID-19 pandemic upended the jeweler’s planned celebration of 150 years in 2020.
“We don’t look at them just as customers,” Borsheims President and CEO Karen Goracke said. “Many of them are repeat customers. They become our friends. Everybody knows them by name.”
Tracing its origins to 1870 when Norwegian immigrant Louis Borsheim opened a jewelry and watchmaking store in downtown Omaha, Borsheims reached the next level of success when Borsheim’s two sons sold the business to Louis Friedman and his son, Ike.
Ike, a nephew of Blumkin, showed that business savvy ran in the family when he developed an innovative technique of selling high-quality jewelry at affordable prices. As Jordon reported, rather than follow the industry practice of paying jewelry suppliers only after the store sold items to customers, Friedman bought the jewelry up front and then sold it to customers.
Friedman said his practice allowed him to get substantial discounts from suppliers, who acted as salesmen to jewelry retailers, looking to move product. In turn, Friedman still could make a profit and ultimately claim 50% of the Omaha jewelry market.
To this day, Goracke said that Borsheims carries no debt and doesn’t require financing.
“I think that plays into our strength that we’ve been able to maintain that business model where we can really just pay for anything immediately,” she said.
Berkshire bought an 80% ownership stake in Borsheims in 1989.
With about 30,000 square feet of retail space, Goracke said Borsheims has the capacity to be a welcoming presence for Berkshire.
“You can’t have hundreds of people go down to Berkshire’s office and have that connection. But we’re able to sort of provide that in a way that is very special for shareholders and other customers,” she said. “I like to say that we’re the best sparkle in the Berkshire portfolio.”
But the sweetest item in the Berkshire portfolio probably belongs to Dairy Queen. Although the chain of more than 7,000 restaurants is headquartered in Minnesota, its Dilly Bars have been a staple of past shareholders meetings, with Buffett personally handing some out. In a tradition dear to Buffett, he takes his grandchildren and great-grandchildren out for Dairy Queen treats every month.
Berkshire has owned Dairy Queen since 1997, when it purchased International Dairy Queen Inc. for about $585 million. At the time, some Dairy Queen shareholders called the deal a steal for Berkshire.
One of the more notable advancements Dairy Queen has made under Berkshire’s ownership has been its transition to the Grill & Chill concept that began in 2004. The restaurant at 5302 S. 72nd St. was the first Omaha area store to offer an expanded menu including chicken and such features as limited table service.
Grill & Chill restaurants now make up nearly three-quarters of the total number of Dairy Queen restaurants in the United States, according to CNBC.
In addition to those businesses, other Berkshire-owned businesses with strong Omaha footprints include Berkshire Hathaway HomeServices Ambassador Real Estate and Northern Natural Gas. The current iteration of Berkshire Hathaway HomeServices Ambassador Real Estate formed out of a 2019 merger with CBSHome Real Estate.
Northern Natural Gas originally was based in Omaha and was reorganized to become InterNorth in 1979. Following its acquisition of Houston Natural Gas Co., InterNorth eventually became Enron and moved to Houston in 1986, taking 2,000 jobs with it.
Enron collapsed in 2001 after a massive accounting scandal that resulted in court convictions for executives including CEO Kenneth Lay. In the fallout, Berkshire’s MidAmerican Energy Holdings acquired Northern Natural Gas for $1.8 billion from Dynegy Inc. and moved the company’s headquarters back to Omaha.
Although Berkshire’s ownership portfolio has an international reach, the executives at its local companies express great appreciation for the attention Buffett has given to his hometown.
“Warren has provided a wonderful example for a lot of businesses to learn from,” Borsheims’ Goracke said. “He’s really good at sharing himself and his wisdom throughout the Omaha community.”